2,600 Student-Loan Borrowers to Get $11 Million in Debt Relief: CFPB

2,600 Student-Loan Borrowers to Get $11 Million in Debt Relief

2,600 student-loan borrowers are getting $11 million in payments after a federal consumer watchdog accused a debt relief company of illegally charging fees — and encouraging customers to 'stop paying their student loans altogether'

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• The CFPB accused debt relief company GST Factoring, and four attorneys, of illegally collecting fees from consumers.
• In a complaint, the agency said the defendants illegally charged fees and encouraged borrowers "to stop paying their student loans altogether."
• 2,600 impacted borrowers will be receiving a collective $11 million in payments in the mail.

A federal consumer watchdog just cracked down on a student-debt relief company over predatory behavior.

On Thursday, the Consumer Financial Protection Bureau (CFPB) announced that 2,600 student-loan borrowers who were charged "illegal upfront fees for student-loan debt-relief services" by GST Factoring, which runs a debt relief business, will receive checks in the mail totaling a collective $11 million.

In 2020, according to the press release, the CFPB filed a complaint against GST Factoring, along with four attorneys who provided debt relief services within the company. The CFPB claimed that the company and the attorneys were responsible for charging about $11.8 million in illegal fees to borrowers with private student debt, even as the Telemarketing Sales Rule states it is illegal to request and receive fees for debt relief services through telemarketing before the debt is settled.

—consumerfinance.gov (@CFPB) March 23, 2023

The CFPB said that the company and attorneys "led consumers to believe that they were working solely with an attorney, but in fact, the fees—which were as large as about 40 percent of the consumers' outstanding student-loan debt—went to GST Factoring, which distributed the funds to the participants in the scheme."

"The complaint also alleged that consumers were encouraged to stop paying their student loans altogether," the press release said. In its complaint, the CFPB elaborated on that accusation, saying that defendants would "encourage consumers to stop paying their student-loan debt, claiming that being behind in payments will make lenders more likely to agree to a settlement." 

Along with the $11 million to pay back harmed consumers, the company is required to pay $30 million in penalties, and the court order bans the defendants from engaging in any debt relief services going forward. Impacted borrowers should receive a check in the mail from RUST Consulting, which works with government agencies, and for additional questions, borrowers can email [email protected].

This is not the first time the CFPB has cracked down on potential predatory behavior by debt relief companies. In December, the agency accused five companies of violating the Telemarketing Sales Rule by deceiving borrowers about the services they offer and collecting advance fees for help getting debt relief. 23,000 borrowers harmed by those companies received $19 million in payments.

Student-debt relief companies often offer borrowers help with repayment, but oftentimes, they come with fees that are not disclosed upfront. After announcing President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers in August, the Education Department made clear that borrowers should not have to pay anything for assistance with relief, and the department released guidance to help borrowers avoid scams as the relief plays out. The broad relief is currently blocked due to conservative lawsuits, and the Supreme Court is expected to issue a final decision on the relief's legality by June.